There is finally a positive start to a session this morning after what has seemed like a bit of a rout in equity markets.
The bounce so far though isn’t very convincing as the technicals have become increasingly bearish as support level after support level is broken up. The dizzy heights of 5600 seem a world away from where we are now as any upside looks increasingly challenging with any rallies being very short lived. Sentiment is seriously bearish now. Yesterday I met an ex-banker who knew little about spread betting or CFDs who asked me how he could make money from the FTSE going to 4600. Clients on the other hand are more optimistic at the moment as they have been opposing the weakness buying the FTSE around these levels and were even longer of the index yesterday, so a further bounce will be warmly welcomed by them.
Key levels to watch in the near term are 5300 to the upside which is where the upper downward trend line comes in and then beyond there, if we ever get to those levels, will see resistance at 5350 and 5400. To the downside support is seen at yesterday’s low of 5220 and 5200 but if we breach here there’s not much until as low as 5000.
With so much shrouding the markets at the moment investors are finding it tough to get the slightest bit excited about equities. With the North Americans we’ve seen it all before and whilst the credit rating agencies have said that they are not circling the US to give them another downgrade, they will be monitoring the politicians’ inability to agree on their budget deficit cuts closely.
The key to all our problems at the moment though is not only to have a lasting solution to the European debt crisis, but to reinvigorate growth. Yesterday our Dave admitted that his deficit reduction plans were not going to hit their original targets, a nice little prompt for the newspapers ahead of next week’s autumn statement from the Chancellor, but the reason being a lack of growth. The adage of “under promising and over delivering” is not something that politicians seem capable of doing and their original growth forecasts were at their best over optimistic when the coalition set out their plans. Lots of hopes are being pinned on next week’s statement as the unemployed and businesses look to him to kick start the economy which has been flat lining for the past few quarters.
FX traders have displayed a reversal in sentiment and we are seeing a squeeze in riskier currencies, on the back of rating companies affirming the US’s credit. S&P, Moody’s and Fitch each retained their stance even after the US Congress failed to agree on reducing the budget deficit. Traders have also taken into consideration holidays in Japan tomorrow and Thanksgiving in the US on Thursday, so are possibly unwinding their positions. The euro is taking advantage and is trading against the dollar at 1.3524, with support at 1.3465 and resistance at 1.3615.
It could possibly have been the cause of looking at the bearish technicals, but investors yesterday seemed to realise that a challenge of the 1800.0 level for gold was growing even more unlikely, which triggered a mass close out of long positions. After dropping to 1666.1, the precious metal tried to claw back some of the losses, but the bulls were not as powerful as they would have hoped and could only pull it up enough to close at 1676.8. At time of writing though, they seem to be using all their force and have pushed it further forwards to 1695.5.
Extra pressure was provided on crude in the form of a lack of agreement from the US on the budget deficit and coupled with the lingering concerns of the European debt crisis, market traders began unwinding their longs and washing out the weaker bulls. Eyes were on the weakening equity markets as well, which added weight to an already heavy energy sector. At time of writing, not much has changed, with Brent only adding 70 ticks to 107.55.